Close to the Heart: Working with Entrepreneurs in Closely Held Enterprises

William Bergquist, Ph.D.

[Following is an introduction to a series of essays posted in the Library of Professional Psychology based on consultation conducted over more than three decades with entrepreneurs and closely-held enterprises. These essays provide guidance for consultants and coaches working with the challenges being faced by these men and women and their organization.]

Entrepreneurship is needed in the postmodern reality of 21st Century life. The “enterprise zone,” which got so much press (at least in the United States) during the 1990s, must be defined in a new way, engaging an entrepreneurial spirit to courageously and effectively address the postmodern challenges of complexity, unpredictability and turbulence. Organizational psychologists can play an important role in meeting the distinctive challenges associated with entrepreneurial leadership in closely held enterprises. What are these challenges and how might an organizational psychologist help an entrepreneur meet these challenges? Furthermore, what are the unique challenges that the organizational psychologist faces when working with entrepreneurs in closely held enterprises?

The Closely Held Enterprise Before identifying and describing these challenges, we must indicate what a “closely held enterprise” is—given that this is not yet a commonly used term. We propose that there are four types of organizations that fit in this category: Type One/The Family-Owned Business: single person ownership, immediate family ownership, extended family ownership, corporate stock held exclusively by family members (for example, a large family-owned insurance company, a major automobile dealership, a high-status restaurant chain).

Type Two/Small Businesses: revenues of less than $5 million per year (for example, a small independent grocery store, a family-owned auto repair shop, a specialty food mail-order business). Type Three/Professional Practices: independent firms that are owned and operated by professionals who usually are licensed to provide highly specialized and technical services (for example, dentistry, veterinary medicine, accounting, architecture, clinical psychology, organizational consulting, and coaching.) Type Four/Focused and Independent Nonprofit Organizations: often small, usually governed by a small, carefully chosen group of like-minded people (often founders). Created for a specific purpose. Providing needed services in a selective niche (for example, shelter for homeless families or battered women, environmental action group to save a specific species, high status public policy think tank).

There are many ways in which these four organizational types differ from one another; furthermore, these four types are usually treated as separate and distinct entities. We propose, however, that these four types share many characteristics and that they often face many of the same challenges.

The Challenges of Enterprise What is it that these four types of closely held enterprise hold in common and what are the challenges faced by entrepreneurs who lead these enterprises? We have identified seven fundamental issues that are embedded in and shared by most closely held enterprises. Each of these seven issues, in turn, poses one or more challenges for the entrepreneur who leads the enterprise and suggests one or more opportunities for effective psychological practices.

Diffuse Roles/Responsibilities/Boundaries The traditional boundaries to be found in the carefully constructed bureaucracies of corporations, governmental agencies and other large organizations are often absent in closely

held enterprises. Nepotism often reigns (especially in family-run businesses), with family members working for other family members. Furthermore, there is often an esprit de corps in the closely held enterprise that leads every employee to lend a hand in whatever way will help the organization. As one of the members of a closely held enterprise with whom we consult recently noted: “Everyone does a little of everything . . . and we can never seem to get totally away from our work.”

Using more technical language, the closely held enterprise is one in which there typically is a high level of integration, but a low level of differentiation among functions. Classical organizational theory suggests that an organization initially begins (like any system) with low levels of differentiation among functions. There is not much division of labor. Everyone does everything when an organization is young. However, as most organizations grow larger or older there is increasing differentiation. Each person does a specific job and there is everincreasing differentiation of roles, language, and even organizational culture. We often describe this today as the tendency for organizations to create “silos”.

While the creation of silos is an effective and expected response to the growth of any organization, silos can create their own unique challenges if coordination and collaboration between these silos begins to suffer. This is where integration enters the picture. As an organization becomes increasingly differentiated, it must create an increasingly large and powerful set of integrating functions. These functions include management, intraorganizational communication channels (for example, telephone, email and intranet systems), and a unifying vision, mission or set of values.

It is important to note that many closely held enterprises do not follow this traditional and often normative model of organizational effectiveness. These enterprises often do not differentiate. Everyone continues to lend a hand in all aspects of the enterprise, even as this enterprise grows larger and older. As a result, there is less need for formal integration among differentiated functions in these unique organizations. The informal and powerful integrative forces that existed when the enterprise was begun remain in force throughout the life of the organization. This is both an asset and liability for the enterprise and for the entrepreneurs who lead this enterprise.

What is the entrepreneurial challenge when roles remain diffuse? Typically, we find that the lack of boundaries and differentiation can lead to burnout. In closely held enterprises, burnout results neither from a lack of recognition for the work one does nor from a more general psychological alienation from the organization where one is employed. (These sources of burnout are more common in corporate life or in government.) Burnout in closely held enterprises is more likely to come from working too many hours, assuming too many responsibilities and finding no time away from the job—even when at home with “the family.”

The key factor is pacing. The entrepreneur can’t do everything, be everywhere, or achieve every goal at one time. While the solution to the problem of burnout seems obvious—quit working so hard—it is remarkable how often in consulting sessions, it all comes down to this one basic issue: “How do I, as an entrepreneur, serving in a leadership role in a closely held enterprise, find time for my family, for my personal restoration and for moments of reflection on the enterprise that I am leading?”

Tacit (Informal and Obvious) Intentions A second major theme is voiced by many entrepreneurs in closely held enterprises: the intentions of the enterprise (Mission, Vision, Values, Purpose) are very important—but are not often discussed or even articulated. Why is this void the case and what are the implications?

First, there is often very little conversation about intentions, because (as we mentioned above) there is little time to discuss these matters, given the time pressure felt by everyone working in the enterprise. They are all working on behalf of the mission of the enterprise, even if they are not sure what this mission is!

Second, in many closely held enterprises, the intentions are obvious—everyone is working on behalf of these intentions every moment of every working day. Most people working in a dentist office know what they are there for: dental health (and the reduction of anxiety associated with the patient’s coming to “see the dentist”). The intentions are similarly obvious to the staff of a law office, employees in a family-run grocery store, crew members on a fishing boat, or volunteers at a woman’s shelter. As one of our clients commented: “If you want to know what our business is, just look around you . . . Why do you even ask?”

There is a third reason for the intentions of a closely held enterprise being important, but rarely discussed. This third reason is inherent in the name: the power in the organization is held closely by a small number of people. There is not much room for other people to influence the intentions of the enterprise, so why even bother talking about these intentions? “Everyone around here knows who’s in charge and who calls the tune—so why even talk about what we value or where we are going in the future.”

What are the implications of a lack of formal intentions in closely held enterprises? First, there tends to be high levels of commitment in the organization—that’s why there is not much need for explicit intentions or for formal mechanisms of integration. Everyone pitches in and provides direct, tangible service to the organization; therefore, there is not much need for conversation about the intentions or for careful monitoring of the alignment of an employee’s work with the formal mission, vision, values or purposes of the organization.

On the other hand, there are low levels of clarity regarding the achievement of specific goals and objectives, and little clarity regarding how one’s own personal performance is measured with reference to a specific set of goals or objectives. Everyone is a bit on edge, waiting for an informed (but often biased) assessment by the entrepreneurial leaders regarding how “well” the enterprise is “performing.” One of my graduate students in the past owned a small business that processes coffee beans for distribution to high-end coffee shops. Every morning, when he walked into his office he could smell the beans being processed and immediately knew if the coffee is “good” or “bad.” He knew intuitively—but can you imagine how his employees felt while waiting for his daily assessment?

The entrepreneurial challenge associated with this issue of inexplicit intentions is a bit complex and even contradictory—a dilemma. On the one hand, it seems obvious that the entrepreneur should be more explicit about the intentions of the enterprise that she leads. She needs to articulate the mission, vision, values and purposes in a way that employees (and other stakeholders) can understand and in a way that enables other people, independently, to assess achievement of specific goals and objectives.

On the other hand, it is critical that the entrepreneur does not become too attached to an explicit set of intentions. Haile Sellassie, the legendary king of Ethiopia (kingdoms are closely held